May 19, 2020
Whistleblowers are on the front lines of America’s COVID-19 pandemic
In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), which authorizes the distribution of $2.2 trillion – the largest fiscal stimulus program in U.S. history. The CARES Act earmarks more than $130 billion for public health (hospitals, healthcare systems, and providers); $669 billion in loans to small business (the Paycheck Protection Program or “PPP”); and $500 billion in loans to eligible businesses, states, and municipalities. The success of the CARES Act in helping our country get back on its feet depends on how well the government can ensure that these funds go to eligible businesses and institutions and are used for their intended purposes – including for approved drugs, devices, vaccines, and therapies.
History teaches, however, that as in previous national crises, the funds appropriated through the CARES Act will be beset by fraud of every kind imaginable. America’s workers, and particularly the essential healthcare workers on the front lines of the pandemic, are uniquely situated to witness, detect, prevent and report COVID-19-related fraud on the government by taking advantage of the rights and protections afforded whistleblowers by the False Claims Act (FCA).
The False Claims Act empowers and protects whistleblowers
Enacted in 1863, the FCA empowers and incentivizes private citizens to report and deter fraud against the federal government. Under the FCA, a whistleblower – referred to as a “relator” – can bring a claim – known as a “qui tam” lawsuit – against anyone who makes a false claim for payment to the government. The FCA allows the government to recover treble damages and statutory penalties for each violation, and gives the relator the right to receive an award of between 10 and 30% of the total recovered. The FCA also protects relators from employment retaliation by giving them the right to “all relief necessary to make the employee whole,” including back pay, litigation costs, and reinstatement. Each year, qui tam relators help the government recover billions of dollars through FCA litigation. In 2019, for example, the U.S. Department of Justice (DOJ) recovered more than $3 billion from FCA cases, of which the overwhelming majority ($2.6 billion) related to the healthcare industry.
The government is prioritizing COVID-19 fraud
Already this year, the DOJ has confirmed that fighting COVID-19-related fraud will be among its top priorities. On March 16, 2020, Attorney General William Barr wrote a memorandum to all U.S. Attorneys issuing directives to, among other things, “remain vigilant in detecting, investigating, and prosecuting wrongdoing related to the crisis,” including those engaged in fraud. On March 20, 2020, the Attorney General urged the American public to report COVID-19 fraud and directed all U.S. Attorneys to prioritize the investigation and prosecution of COVID-19-related fraud schemes.
Members of Congress have likewise expressed their support for using the FCA to prevent fraud in the era of COVID-19 and the CARES Act. For example, on March 24, 2020, four members of Congress wrote a letter to the Attorney General urging the DOJ to establish a task force to monitor and investigate violations of the FCA related to federal programs supporting the response to COVID-19. Their letter cited Universal Health Servs. v. U.S. ex rel. Escobar, the 2016 case in which the U.S. Supreme Court ruled that any healthcare provider receiving federal funding, including nursing homes and hospitals, can be held liable under the FCA for not providing the level of care mandated under contract or by federal and state laws and regulations.
The government has already begun to see results in its efforts to combat COVID-19-related fraud. On April 22, 2020, the DOJ announced that it had disrupted hundreds of online COVID-19-related scams that private-sector companies had used to exploit the COVID-19 pandemic to commit fraud. Two days later, the DOJ announced that a court in Dallas, Texas, had prohibited a health care center from falsely touting a supposed “ozone therapy” as a COVID-19 therapy. On May 7, 2020, the DOJ announced that a man in New York City had been arrested for selling stolen COVID-19 test kits and services.
Other federal agencies have similarly demonstrated their dedication to preventing unapproved, substandard, or deceptively marketed COVID-19-related products. On May 7, 2020, the FDA withdrew approval for more than 60 manufacturers in China to export N95-style masks after finding what the agency said was a large number of low-quality products from those companies. On March 9, 2020, the Federal Trade Commission and U.S. Federal Food and Drug Administration sent warning letters to seven companies allegedly selling unapproved products – including teas and oils – that deceptively marketed treatments for COVID-19.
Past enforcement predicts future cases
In looking out for the types of fraud to expect in the era of COVID-19, would-be whistleblowers can look back to previous successful FCA lawsuits regarding the marketing of unapproved or off-label drugs, devices, vaccines, treatments, and therapies, or the payment of illegal kickbacks to boost the sales of such products. For example, in 2010, Novartis paid $72 million to settle claims by the DOJ that the company had marketed its cystic fibrosis drug, TOBI, for unapproved (off-label) uses for diseases for which that drug had not been approved. Similarly, in 2014, McKesson Corp. agreed to pay $18 million to settle charges by the DOJ that it had shipped vaccines at the wrong temperature and knowingly submitted false claims to the CDC in connection with those shipments. More recently, in January 2020, the DOJ announced that Resmed Corp. had agreed to pay $37.5 million to resolve claims that it had paid illegal kickbacks to medical equipment suppliers and healthcare providers to influence decisions to purchase medical equipment to treat sleep apnea that was reimbursed by the government healthcare payors.
Whistleblowers can also look to previous successful FCA lawsuits relating to false certifications made to the Small Business Administration (“SBA”), which is administering the new PPP established by the CARES Act. For example, in 2010, a bank agreed to pay $2.2 million to settle allegations of false certifications in a loan application to the SBA. In August 2019, a defense contractor agreed to pay $20 million to settle allegations that it had violated the FCA by fraudulently obtaining federal contracts reserved for small business that the company was ineligible to receive.
Finally, given that nursing homes have been particularly ravaged by COVID-19, one can expect the DOJ to strongly pursue its National Nursing Home Initiative, launched in March 2020, and to continue to vigorously pursue nursing homes under the FCA and to continue reaching significant settlements like those announced on February 19, February 28, and April 14 of this year.
In virtually every national crisis in the past 150 years – including the Civil War, the New Deal, World War II, September 11, Iraq, Afghanistan, Hurricane Katrina, and the 2008 financial crisis – the FCA and qui tam whistleblowers have, as one court put it, “protect[ed] the treasury against the hungry and unscrupulous host that encompasses it on every side . . . .” Now, in the wake of the largest fiscal stimulus program in U.S. history, essential workers on the front lines of the COVID-19 crisis can again play a key role in detecting, preventing, and reporting fraud.
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